External benchmark: Right step, wrong tool

While politicians and businessmen don't see eye to eye on anything during a slowdown, the one thing they all agree on is that cutting interest rates would spur growth

What happens when policymakers do the right thing for the wrong reasons? The outcome may turn out to be good owing to sheer luck, but more likely they are setting the stage for some unpleasant, unintended consequences. This is what may happen as the fallout of the September 4 circular of the Reserve Bank of India (RBI). Beginning October 1 this year banks will have to link the interest rates on such loans to a known external benchmark, instead of using their own opaque internal benchmarks. This is good news for consumers, not because their loans will become cheaper. From